Banking group Absa new sector development in retail and business banking head Justin Schmidt argues that renewables should play an increasingly important role in South Africa’s energy mix

Since September, South Africa has had more than 20 days of load-shedding, which, at its worst, unprecedentedly reached Stage 6. This occurred outside the peak electricity demand winter months.

The problem is caused by breakdowns and unreliable electricity generation at State-owned utility Eskom’s plants. The national energy blueprint, the Integrated Resource Plan, modelled energy availability at 80%, but, currently, availability is barely above 60%. A major concern is the unplanned outages linked to the lack of proper long-term maintenance.

On January 29, the Eskom board approved the utility’s Generation Recovery Plan. One of its salient points is that Eskom is introducing ‘philosophy maintenance’, which, essentially, means that the utility is placing greater emphasis on maintaining its struggling fleet, while midlife refurbishment will not be compromised. In order to implement this, there is an increased likelihood of load-shedding during the next 18 months. There will be a focus on fixing build defects, extending the life of operating units and reducing unplanned outages. In other words, load-shedding is not likely to disappear from our lexicon any time soon.

The barometer for manufacturing confidence, the Absa PMI, was released on the February 3; it showed a reduction in confidence during the first month of the year, falling to just 45.2 index points in January from 47.1 in December. A number below 50 indicates that more manufacturers are pessimistic about the prospects for the next 12 months than those who are optimistic. The ongoing electricity supply constraints remain a downside risk and appear to be dampening sentiment in the sector, as the index measuring expected business conditions in six months’ time fell to a 15-month low.

Energy security is crucial for businesses’ long-term planning and the achievement of their growth ambitions. Unfortunately, a lack of reliable power impacts on the entire value chain and the efficiency and confidence of businesses, which has further knock-on effects. Fortunately, businesses do have other options, and renewable energy and batteries should play an increasingly important role for South African businesses. Battery-tied installations can be a catalyst for investments where there is no energy infrastructure available or where infrastructure is not reliable (as is the case currently with load-shedding).

Increased investment in solar solutions, enabled by green asset finance, is being driven by:

• a decreasing cost of technologies;
• increasing awareness and acceptance of solar as a technology (coupled with strong skills and experience within the teams that design and build these installations);
• substantially higher tariffs (the price you pay for units of electricity) over the past decade; and
• a reduction in the cost, and an increase in the life span, of batteries (driven by the strong investment into lithium-ion technology).

Although most installations are not integrated with batteries, the current state of energy supply is changing that. Interestingly, there is a relatively strong adoption of batteries (especially given that there has been a shift from lead-acid batteries to lithium-ion batteries), owing to the reduction in lithium-ion battery prices (driven by global investment in electric-vehicle production); warrantees of up to ten years on lithium-ion batteries; and increased useful lives of batteries, which can extend beyond ten years.

Battery-integrated solutions should be an enabler of business growth into the future. As the country moves towards an inflection point, where batteries plus solar become cost competitive when measured against existing energy supplies, private-sector companies will provide the energy infrastructure required to grow their own businesses. Therefore, while the case for batteries might often land best for businesses that cannot afford a loss of energy and see the opportunity cost of lost production, this is rapidly changing.

Support for rooftop solar below 1 MW continues, as is evidenced in South Africa’s energy blueprint, the Integrated Resource Plan 2019. Currently, there is debate around the process to bring projects ranging from 1 MW to 10 MW on line as well as around whether municipalities should buy directly from independent power producers. All these policies have broad-based support and will, hopefully, result in a clearer environment around these issues in the coming months.

With this in mind, substantial growth in the rooftop solar market should continue and every installation will play a role in alleviating the pressure that is currently on the grid. 
Battery integration is becoming more of a reality with solar installations, given that load-shedding directly impacts on production and companies’ expectations of the future. Taking charge of your own energy future is becoming a competitive advantage for many businesses.

Schmidt heads New Sector Development in Retail and Business Banking at Absa - justin.schmidt@absa.africa